Benefits of value-added tax

VAT or value-added tax is a type of sales or consumption tax. When a person buys a particular item, part of the whole retail price being paid is the value-added tax. Every time a product is purchased, VAT is included in the price and this is
shouldered by the end-consumer. Taxes including VAT are just one of many ways that governments earn income for a variety of projects. Although taxation standards and laws may not be fully understood by many people, implementation of VAT in purchasing goods can actually give some benefits including the following:

1. Income for government projects

Every product purchased will have value-added tax added to its retail price and this is being shouldered by customers. The money collected from this kind of tax will actually go to the government and help fund various projects which may include housing and infrastructure development plans. Tax funds may also be used to build bridges, hospitals, and schools which benefit a whole community.

2. Less chance of being double-charged

Purchase of goods starts from the source of raw materials to the manufacturer, laborer, and down to the consumer. Each step of the way involves taxes for the goods purchased. With value-added tax, the system ensures that there will be no
double-charging in any step. Taxes already paid the manufacturer for example won’t be added to the tax owed by a certain laborer for example.

3. Better transparency

Requiring VAT on the purchase of goods also means that businesses will become more transparent with what they charge customers and with what they owe the government. Every detail of the value-added tax will be printed on a receipt and this will be used as proof for the actual computation in which a business will use in paying its dues to the government.

Implementing VAT system may not benefit some sectors of a particular society. But its benefits will usually outweigh its disadvantages and this is why many countries have their own kind VAT system.